TIGA: Cut the Gordion Knot of EU VAT Regulation to Protect Micro Businesses

LONDON, July 17, 2014 /PRNewswire/ --

TIGA Publishes Free Guide in collaboration with Grant Thornton to Help Businesses Prepare for New EU VAT Regulations 

TIGA, the network for games developers and digital publishers, today called on policy makers to exempt small businesses from significant new EU VAT regulations.

The new rules mean that if a games company sells games direct to consumers in the EU by digital download or online, then it will have to account for VAT on those sales at the relevant Member State's VAT rate, rather than the VAT rate where the games business is based. Games companies will have to have systems in place to determine where the customer is based, and have only until the 1^st of January 2015 to prepare.

To help educate games businesses on these issues and help them prepare, TIGA has collaborated with Grant Thornton to produce a guide to the forthcoming changes, which can be downloaded for free, here.

Further Background on the EU VAT changes   

On 1 January 2015, new VAT regulations governing the supplies of telecommunications, broadcasting and electronically supplied services (TBES) come into effect.  The 'place of supply' of such services will change from the Member State where the supplier belongs to the Member State where the consumer is based. As a result, VAT will be chargeable at the applicable rate in each of the Member States in which TBES supplies are made. To ensure compliance, suppliers will either need to register for VAT in every EU Member State where TBES supplies are made (up to 27 separate VAT registrations) or make use of an EU-wide accounting system known as the 'mini one stop shop' (MOSS). Significantly, there is no de-minimis turnover threshold, so registration will be required irrespective of the value of TBES in each Member State.

TIGA warns that the new VAT regulations will increase the regulatory burden on businesses, including games businesses. Studios will need to:

• have systems in place to determine where  a customer is based (HMRC will expect studios to have two pieces of evidence to confirm location and if these are contradictory then there will need to be a third);
• implement the right systems to determine whether the supplies are business-to-business or business-to-consumer and ensure that the correct information is collected and kept;
• interpret and comply with obligations and conflicts arising between data protection laws and the record retention requirements arising from the various VAT regimes around the EU;
• continuously monitor transactions for reporting purposes;
• monitor and determine the requirement to register in other EU Member States (and potentially deal with the registration process);
• ensure that distributors, e.g. Apple and Steam, take responsibility for dealing with the VAT on consumer sales, including in-app purchases - if they do not then the responsibility will lie with the studio.

To make matters worse, some small and start-up studios will be unable to benefit from the MOSS. This is because to qualify for the MOSS, suppliers will have to be VAT registered in the UK. Businesses not registered for VAT in the UK with turnover below £81,000 will not be able to use the simplified MOSS scheme. Instead, they will be required to register and account for VAT in the Member State in which the customer belongs, through a local VAT return.

Dr Richard Wilson, TIGA CEO, said:

"The EU's new VAT regulations will increase costs and compliance burdens on many businesses, including games businesses. Almost 60 per cent of UK studios have four or fewer staff. These businesses do not have the in-house expertise to deal with the administrative burden that the new rules will spawn.

"To add insult to injury, small start-ups with turnovers of less than £81,000 will not be able to benefit from the MOSS scheme. These small businesses will have to register for UK VAT and account for this on all UK supplies. Pricing structures will therefore need to be amended to either increase prices or reduce profit margins. This could have a damaging impact on the competitiveness of smaller businesses.

"Given the increased regulatory burden and the damage to competitiveness, some small games businesses (and some small businesses in other sectors) may restrict sales to the UK only. The new VAT regulations have the potential to discourage exports from some small businesses.  

"TIGA recommends that policy makers introduce an exemption to the requirement to either register for VAT in other EU Member States or register for MOSS when providing electronically supplied services to private consumers. This would reduce the burden on start-ups and small businesses and ensure that such businesses are not deterred from trading with customers throughout the EU."

About TIGA
TIGA is the trade association representing the UK video game industry. We help developers and digital publishers build successful studios, network with the right people, save money and access professional business advice. We also have traditional publishers, outsourcing companies, technology businesses and universities amongst our membership.

TIGA is 90% funded by independent UK businesses. 80% of our board members are developers and/or from UK owned businesses, and 50% of our board are UK business owners themselves. Since 2010, TIGA has won 17 business awards.

TIGA focuses on three sets of activities:

• Political representation
• Media representation
• Business services

This enhances the competitiveness of our members by providing benefits that make a material difference to their businesses, including a reduction in costs and improved commercial opportunities. It also means our members' voices are heard in the corridors of power and positively represented in national, broadcast and UK video game trade media.

Get in touch:

Tel: +44(0)845-468-2330
Email: info@tiga.org 
Web: http://www.tiga.org
Twitter: http://www.twitter.com/tigamovement
Facebook: http://www.facebook.com/TIGAMovement
LinkedIn: http://www.linkedin.com/company/tiga  

For further information, you can also contact: 

Dr Richard Wilson, TIGA CEO on: +44(0)7875-939-643, or email: richard.wilson@tiga.org
Drew Field, TIGA Communications Director on: +44(0)7720-643-344, or email drew.field@tiga.org